Business, Sustainability and the Global Economy

(1)

I N T R O D U C T I O N

Business, Sustainability and the Global Economy

Our business model drives growth that is consistent, profitable, competitive – and responsible. It is why we created the Unilever Sustainable Living Plan (USLP) … The USLP is driving growth through brands with purpose, taking out costs and reducing risk – helping us build trust.

Statement by Unilever, www.unilever.com/

sustainable-living/values-and-values/

I have a wall covered with sustainability certificates. I had to hire an extra person to take care of all these procedures. I need to do it to keep buyers happy. Do they pay better prices for my product? No, it is just one more thing I have to do for them.

Author’s interview with a wine producer, South Africa Green growth, corporate social responsibility and sustainability management have become part of the lexicon of business. Sustainability competitions and prizes showcase the ‘good work’ that some corporations are doing to address social and environmental concerns, from the global to the local levels. Many firms regularly publish sustainability reports to document their commitment to a better future, while reas- suring investors that they can achieve positive financial results too.

They also require their suppliers (often based in the Global South) to improve their own social and environmental practices. Given this picture, do we need different or additional regulatory interventions and activism to push business to further improve its practices?

Climate change, rampant deforestation in some parts of the globe, loss of biodiversity, and ocean acidification suggest that current business practice is not enough, that current regulatory instruments are falling short, and that social movements and activism still have a long way to go. In this book, I argue that the roles of public authority and

(2)

civil society are still key for improving environmental sustainability, but that their strategies and approaches need to be informed by an understanding of how powerful firms govern global value chains (GVCs).

Sustainability has become a mainstream concern in the operation of the global economy and its regulatory structure. The reframing of the international development agenda from the Millennium Development Goals (MDGs) to the Sustainable Development Goals (SDGs) is one example. Furthermore, the 2015 Paris Agreement on Climate Change will have important implications on economic activity as it seeks to limit greenhouse gas emissions. But the SDGs and Paris Agreement goals will have to be attained in a world that over the past century has seen a true trans-nationalization of economic activity. Global trade has not only grown exponentially (far outpacing GDP growth), but has also undergone a major transformation, following the restructuring in the organization of production away from market exchange and vertical integration within transnational corporations – and towards the operation of GVCs (Gereffi, 2014; Ponte and Sturgeon, 2014).

Parallel to this reorientation, a rapid proliferation of corporate, industry-level and multi-stakeholder initiatives and partnerships (MSIs) focused on sustainability has taken place – at the transnational, national and local levels. These have led to significant shifts in the way powerful firms in GVCs approach sustainability and leverage it to create and capture value. As transnational MSIs on sustainability continue to extend their influence, there has been increased interest in understanding how they contribute to sustainability governance – together with different forms of government regulation, international agreements and direct action by activist groups and international NGOs. Previous research has shown that regulation and support from governments and international organizations still play an important part in facilitating sustainability governance (Bush et al., 2013; Foley, 2013; Gale and Haward, 2011; Gulbrandsen, 2014), both directly (e.g. through regulation, partnerships, facilitation and endorsement) and indirectly (e.g. through changing the institutional context of sustainability tran- sitions). Therefore, the interaction of sustainability governance and GVC governance is not only of interest to an academic audience, but has important implications for public policy, business strategy and social activism.

In the rest of this chapter, I will first introduce the reader to what it means to be in a ‘world of global value chains’, followed by a discussion

(3)

of the different challenges faced in governing sustainability in this context. Next, I will explain that environmental sustainability has become a business and has entered the mainstream of business strategy and operations. I will then argue that the current practices corporations put in place to address sustainability issues are facilitating a process of ‘green capital accumulation’, also by squeezing value out of suppliers through sustainability-driven demands. In the final two sections, I include a short rendition of the main arguments and key questions addressed in the book, and a guide for different audiences on how to read it. In the rest of the book, the term ‘sustainability’ is used nar- rowly to refer to its environmental aspects, unless otherwise stated.

This choice was made to both provide a feasible focus and address an aspect of sustainability that the existing GVC literature has relatively neglected, given its predominant attention to social and labour issues.

A World of Global Value Chains

Global Value Chains and Their Governance

Technological and organizational changes have been crucial in transforming the way in which production is organized across time and space. The steam engine in the nineteenth century made transpor- tation and manufacturing economic in ways that allowed the spatial separation of production from consumption (Baldwin, 2016), but for much of the twentieth century production was still organized mostly along vertically integrated firms. By the late 1970s, however, a more flexible and spatially dispersed mode of production had taken hold – based on slicing up production into specific tasks and moving some of these out of the boundary of the firm through external contracting (Piore and Sabel, 1985). Information and communication technol- ogy in the latter part of the twentieth century further facilitated the global outsourcing and offshoring of manufacturing activities (Dicken, 2007). This has led to the organization of economic activity in GVCs that are dispersed globally but governed centrally by ‘lead firms’ (Bair, 2009a; Cattaneo et al., 2010; Gereffi, 1994; Gereffi et al., 2005; Ponte and Sturgeon, 2014).

The term GVC refers to the full range of activities that firms, farmers and workers carry out to bring a product or service from its conception to its end use, recycling or reuse. These activities can include design, production, processing, assembly, distribution, maintenance, disposal/

(4)

recycling, marketing, finance and consumer services. In a ‘global’

value chain, these functions are distributed among many firms in different places around the world. In this context, ‘lead firms’ are groups of firms that operate at particular functional positions along the chain and that are able to shape who does what along the chain, at what price, using what standards, to which specifications, and delivering in what form and at what point in time (Gereffi, 2019; Gereffi et al., 2005;

Humphrey and Schmitz, 2001; Ponte and Sturgeon, 2014).

Understanding the changing dynamics of the global economy requires knowledge of how GVCs are governed. The original concept of GVC governance is based on the observation that value chains are rarely coordinated spontaneously through market exchange (Gereffi, 1994; Gereffi et al., 2005; Gibbon et al., 2008). Instead, they are governed as a result of strategies and decision-making by specific actors, usually large firms that manage access to final markets, but also at regional and national/local levels. In deciding how to manage trade and production networks in global industries, lead firms are faced with a number of choices. First, whether to make components in-house, pro- cure them on the market, or adopt hybrid solutions involving various kinds of longer-term relationships with suppliers. And second, if they decide to buy, they need to specify the characteristics of the good or service (such as price and volume) as well as identify the qualifications or attributes that suppliers should possess – including those related to sustainability. From this perspective, GVC governance is thus the set of concrete practices and organizational forms through which a specific division of labour between lead firms and other actors arise and is man- aged (Gibbon et al., 2008). Examining GVC governance then means studying the content and the management of these decisions across all suppliers and sub-suppliers, the strategies behind the decisions taken, the management methods chosen to implement them, and the systems through which their outcomes are monitored and reacted on (Ponte and Sturgeon, 2014).

From a broader perspective, however, GVC operations are also shaped by actors that do not directly produce, transform, handle or trade products and services – such as civil society organizations, social movements, consumer groups, networks of experts and policymakers, and multi-stakeholder initiatives for sustainability (Bair, 2017; Bair and Palpacuer, 2015; Nickow, 2015; Ponte and Sturgeon, 2014). Finally, states and international organizations play a key role

(5)

in constructing and maintaining GVCs through facilitative, regulatory and distributive interventions (Mayer and Phillips, 2017; Nadvi and Raj-Reichert, 2015; Neilson and Pritchard, 2011). States can act as intentional architects of GVCs, regulate (or deregulate) their func- tioning, and choose to (not) redistribute the extra wealth generated through GVCs. States can also be important direct actors in GVCs, for example through state-owned enterprises and public procurement (Horner, 2017). In other words, states make active choices in a ‘GVC world’, and only a comprehensive analysis of all these actors can aptly explain the changing dynamics of sustainability governance and related processes of capital accumulation.

GVCs, the ‘New’ Global Economy and Capital Accumulation

The rise of GVCs is redrawing ‘the international boundaries of knowledge. The contours of industrial competitiveness are now increasingly defined by the outlines of international production networks rather than the boundaries of the nations’ (Baldwin, 2016: 6).

Production of goods and services is fragmented and spatially dispersed, and is governed by lead firms that coordinate the activities of a myriad of supplies and sub-suppliers (Coe and Yeung, 2015; Dicken, 2007;

Gereffi, 2014; Gibbon and Ponte, 2005). In other words, ‘GVCs have become the world economy’s backbone and central nervous system’

(Cattaneo et al., 2010: 7). Lead firms have progressively focused on the specific tasks they excel in, while outsourcing and offshoring others – a movement that opened up possibilities for suppliers in new locations (and especially in the Global South) to specialize in specific tasks without necessarily needing their countries to build back-to-front industrial systems (Gereffi, 2019).

The advent of the Internet has facilitated further restructuring in GVCs, with outsourcing dramatically expanding into services (Low, 2013). This, parallel to a dramatic increase in the trade of interme- diate products, has led some scholars to talk about the ‘servitization’

(Vandermerwe and Rada, 1988) or ‘servicification’ (Low, 2013) of the global economy, and the rise of ‘manuservices’ (Bryson and Daniels, 2010). The digitization of value chains and the growth of automated manufacturing technologies are currently fuelling new restructuring dynamics, which may facilitate the virtual movement of labour through telepresence and telerobotics, and a partial reshoring of production activities in the Global North, for example through 3D printing (Baldwin,

(6)

2016; Rehnberg and Ponte, 2017). Artificial intelligence, robotics, and what is now known as the Industry 4.0 model more generally, are likely to change the world of work and the sustainability of production (Husain, 2017; McAfee and Brynjolfsson, 2017; Schwab, 2017, 2018), but also to push large groups of people off employment, necessitating some form of basic income provision for social peace (Bregman, 2017).

These transformations will entail new economic geographies of production, divisions of labour, regionalization dynamics, and perhaps a shortening of the distance between production and consumption – but they may also consolidate existing patterns and power dynamics.

Vertical specialization in GVCs has entailed that capital accumulation for lead firms increasingly takes place through carrying out multiple tasks at the two ends of a value chain – in pre-production activities (such as design and R&D) and post-production activities (such as marketing, branding and aftersales services) – where much of the value added is currently being created or captured (see Figure 0.1). In the past three decades, we have indeed observed a movement away from a relatively balanced distribution of value added along various functions in the value chain, to a situation where most value is added in pre- and post-production activities, reflecting a ‘smiling curve’ in the distribution of value added (Ali-Yrkkö and Rouvinen, 2015; Baldwin, 2013;

Low, 2013; Shin et al., 2012). New technological and organizational innovations, however, may reshape this curve in the future (see Figure 0.1). For example, research on one of these new technologies (3D printing) (Laplume et al., 2016; Rehnberg and Ponte, 2017) highlights two possible scenarios: a complementarity scenario of 3D printing and traditional manufacturing overlapping, which would reproduce power relations in GVCs and the current distribution of value added along a ‘smiling curve’; and a substitution scenario of 3D printing partly or fully superseding traditional manufacturing, which would have more transformational effects – in terms of ‘rebundling’

of activities, regionalization or localization of GVCs, and a flatten- ing of the smiling curve into a ‘smirk’.

In order to continue extracting value and maximizing capital accumulation, lead firms in GVCs seek to reduce cost/capability ratios in dealing with their suppliers (Coe and Yeung, 2015). Rather than simply minimizing costs, they aim at finding the most capable suppliers to carry out a specific task at a competitive cost. Lead firms are also sourcing from fewer, larger suppliers and transferring the costs of inventory to

(7)

them (Gereffi, 2014; Gibbon and Ponte, 2005). Because they operate in a global economy that is ever-more uncertain and unpredictable, due to fast technological change, financial instability and climate varia- bility, lead firms need to actively manage risks – including those arising from sustainability demands placed by regulation, consumers and civil society groups. This requires not only cleaning up their own operations, but also those of their suppliers – through codes of conduct, mandatory reporting, supplier monitoring and/or requiring suppliers to deliver certified ‘sustainable’ products. This involves varying combinations of hands-on strategies (related to suppliers’ operations

Production

Pre-production Post-production

Value Chain Activities Value

Added

Design

R&D Business Dev

Packaging

Sales/Aftersales Logistics

Business Dev

Manufacturing Design R&D

Scenario 1

3DP as a Complement

Product Dev

Assembly

3DP as a Substitute

Value Chain Activities Value

Added

Design

R&D Business Dev

Assembly Packaging

Sales/Aftersales Logistics Product Dev

Manufacturing

3DP

R&D Business Dev

Design Product Dev

Sales/Aftersales Scenario 2

Production

Pre-production Post-production

current situation future scenarios

Figure 0.1 Possible Modifications in the ‘Smile Curve’ of Distribution of Value Added along GVCs

Source: Adapted from Rehnberg and Ponte (2017: 4)

(8)

and supply specifications) and hands-off strategies (such as third- party certification) that allow the externalization of responsibility for sustainability.

Last but not least, lead firms seek to become more ‘financialized’

through outsourcing their operations and minimizing productive capital investment and inventory – to better deliver ‘shareholder value’

(Coe and Yeung, 2015; Engelen, 2008; Froud et al., 2000; Gibbon and Ponte, 2005). This entails more focus on short-term reorgani- zation of their finances than on long-term investment in productive activities, but also the ‘optimization’ of their tax liabilities and wealth through active management of their ‘global wealth chains’ (Seabrooke and Wigan, 2014, 2017). Lead firms thus do not only disaggregate production activities around the globe; they also disaggregate themselves legally and financially to place profit and (non-tangible) assets in tax haven jurisdictions.

As sustainability becomes a central concern in business conduct and strategy, and in approaches to value creation, capture and distribution, this book addresses several questions regarding GVCs that remain unanswered. How is the new shape of sustainability governance transforming GVC governance, and vice versa? Are lead firms in GVCs strengthening their power positions vis-à-vis other actors, or is their power being diluted by the emergence of a global sustainability agenda?

How are sustainability concerns threatening, consolidating or transforming capital accumulation? Are sustainability solutions adopted by lead firms solving, reinforcing, or making no difference in terms of tackling environmental problems? Will even the most successful sustainability initiatives in GVCs be sufficient to tackle these challenges, or are they providing distractions from adopting more radical solutions?

Governing Sustainability

The term ‘sustainability’ has been known for at least two centu- ries, and was first coined in reference to forest management in Europe (Scoones, 2016). But it was not until the 1970s and 1980s that sustainability became a widespread concern, with activists calling for radical change and governments adopting harder regulation approaches to shape business conduct. With the publication in 1987 of the Brundtland Report, the notion of ‘sustainable development’ started to take shape, defined as ‘development that meets the needs of the present without compromising the ability of future generations to meet their own

(9)

needs’ (Brundtland Commission, 1987: 45). Sustainable development thus introduced the idea that economic growth and environmental pro- tection can both be achieved. This view was solidified at the 1992 UN Conference on Environment and Development in Rio de Janeiro, and the follow-up Rio+20 conference in 2012. The latter placed particular weight on the promotion of multi-stakeholder partnerships for sustainability, now enshrined in the Sustainable Development Goals as goal 17.

Definitions of, and approaches to, environmental sustainability (the focus of this book) are critically discussed in a variety of disciplines (see Scoones, 2016): from neoclassical economics’ use of the concept of natural capital (which is either substitutable with human capital, or needs to be maintained at a certain level) (Coffey, 2016) to ecological economics’ more dynamic linking of economic activity and ecological systems (through life-cycle analysis, footprint evaluations, cradle-to-cradle approaches) (Finnveden et al., 2009; McDonough and Braungart, 2010); from earth system approaches arguing that environmental (and more recently also social) ‘planetary boundaries’

need to be sustained (Biermann, 2014; Rockström et al., 2009a) to analyses of natural hazards and climate change (Turner et al., 2003);

and from political ecology approaches linking politics, political economy and natural resource use (Newell, 2012; Peet et al., 2010) to the delineation of discursive and material pathways to sustainability and their distributional effects (Clapp and Dauvergne, 2011; Leach et al., 2010; Scoones, 2016; Scoones et al., 2015). In this book, I take a prag- matic approach to the definition of sustainability – accepting anything that is labelled by GVC actors as environmentally sustainable as such, but critically approaching these definitions and related operationaliza- tions. At the same time, this broad take on sustainability is adapted to different analytical needs, translating into the following definitions:

• Sustainability management indicates the strategic actions taken by

‘lead firms’ in GVCs in relation to environmental issues; this is one of the elements of GVC governance, the set of concrete practices and organizational forms through which lead firms shape a specific division of labour between them and other actors along the chain.

• Sustainability governance refers to the cumulative efforts by public sector actors, corporations and business associations, NGOs and other civil society groups to address environmental challenges.

(10)

• Orchestration relates to the specific efforts of public actors in attempting to shape environmental processes and outcomes; this is essentially a public sector entry point to sustainability governance that goes beyond the traditional tools of government regulation.

Business can do much in reducing the environmental footprint of its own operations. But the fact that production is increasingly fragmented, both geographically and organizationally, poses extra challenges in transmitting sustainability requirements to other value chain actors.

The many scandals that have touched branded companies have led them to devise sustainability strategies for their own operations and for those of their suppliers to minimize reputational risk, and to participate in multi-stakeholder initiatives addressing sustainability issues in GVCs (Nadvi, 2008; Vurro et al., 2010; Wahl and Bull, 2014).

Environmental improvements that corporations can implement on their own include those affecting production, processing, distribution, consumption and disposal or recycling. These processes can lead to net cost reductions for operators due to, for example, increased efficiency or reduced energy consumption. In other instances, they lead to net value addition, for example through the creation and certification of new environmental qualities that become embedded in products selling at premium prices. Other times, they impose net costs in the short term that can only be recouped in the long term. If the net additional costs are permanent, firms will carry out environmental improvements only if their major competitors do so, either through regulation or through industry-wide voluntary standards (Orsato, 2009), or only if consumers are available to pay higher prices for goods produced with better environmental standards. Given the range of factors involved, it is no surprise that corporations, even within the same sector, follow a variety of paths and have diverging environmental performance (Gunningham et al., 2003).

Many environmental impacts, such as the greenhouse effect, have transnational dimensions and require transnational governance. They may be non-tangible and have time-delayed effects. In these cases, national regulation, even in key polluting countries, can only provide partial solutions. At the same time, truly global environmental governance is very hard to attain through international legally bind- ing agreements. International organizations and agencies, such as UNEP, and Multilateral Environmental Agreements (MEAs) have

(11)

important roles to play. MEAs with a relatively narrow focus, such as the Convention on International Trade in Endangered Species, the Stockholm Convention on Persistent Organic Pollutants, and the International Stratospheric Ozone Regime (1987 Montreal Protocol), have been relatively successful. But broader multilateral negotiations, such as the 1992 United Nations Framework Convention on Climate Change (UNFCC), are prone to deadlock. The 1997 Kyoto Protocol took only two years to negotiate (with rules of implementation final- ized in 2001), but the negotiations to replace it have been very complex and time-consuming, finally leading to the Paris Agreement of 2015. Even after these agreements are signed, however, they are still vulnerable to changes in political climate, as President Trump’s declaration that the US will retract from the Paris Agreement attests.

A number of governance solutions have emerged alongside national regulation, MEAs and voluntary business action. These include the United Nations Global Compact (UNGC), many forms of public–

private partnerships, and an increasing number of multi-stakeholder initiatives for the sustainability of agro-food and forestry products, minerals, chemicals, electronics, and many others. Thus, sustainability governance includes components of intergovernmental negotiation, private action and hybrid public–business–civil society interaction. But how can it be orchestrated so it delivers positive sustainability outcomes, and not just green capital accumulation? Existing research on transnational sustainability governance can provide some answers, but, as we will see in Chapter 1, these are of limited value without the insights of how GVCs operate.

One of the main tenets of transnational sustainability governance is that actors and institutions involved in it are constantly seeking to assert political and rule-making authority – the decision-making power over particular environmental issues that is accepted as legitimate from specific audiences (Cashore, 2002; Fransen, 2012). This is because they cannot rely on the exclusive authority of the state or a global insti- tution. The emergence of private authority has not led to a wholesale retreat of the state, but to new overlaps between the public and private spheres. While private authority has been on the rise, it often applies to areas that were never regulated by the state to begin with. When private authority addresses transnational problems, it can actually enhance state capacity by allowing the state to escape innate constraints placed by territorial borders and to focus more effectively on other areas of

(12)

regulation. Finally, private authority often needs public authority to establish legitimacy. This suggests that what is normally conceived as private authority, in contrast to public authority, actually has salient hybrid features (Ponte and Daugbjerg, 2015).

These hybrid dynamics can provide alternative and more flexible venues to address environmental problems – as shown by the rich variety of transnational experiments and entrepreneurial governance initiatives that are being carried out by industry associations, alliances of cities, individual corporations, international and local NGOs, and other non-state actors (Andonova et al., 2009; Bäckstrand, 2008;

Hoffmann, 2011). Hybrid instruments can also overcome two of the main problems that have plagued intergovernmental treaty formation, such as path dependence and institutional inertia. Yet they can also facilitate self-interest for individual actors to achieve particularistic goals. And state capacity and intergovernmental action remain crucial in facilitating the emergence, implementation and enforcement of sustainability governance.

Some of the challenges of sustainability governance relate to how to create some coherence in the fragmentation of governance instruments in the environmental field and how to build meta-governance instruments (Derkx and Glasbergen, 2014; Zelli and Van Asselt, 2013). Thus, much attention is now being dedicated to the possible mechanisms and strategies that nation states and international organizations can use to shape environmental outcomes. The concept of orchestration provides a useful tool to address the perceived transnational governance deficit. It refers to a wide set of mechanisms, some

‘directive’ and others ‘facilitative’, that public authorities can put in place (see examples in Chapter 5). Directive orchestration relies on the authority of the state and international organizations, and seeks to incorporate private initiatives into its regulatory framework, for example through mandating principles, transparency, and codes of conduct. Facilitative orchestration relies on softer instruments that are often carried out behind the scenes – such as the provision of material and ideational support, in order to kick-start new initiatives and/

or to further shape and support them (Abbott and Snidal, 2009a;

Abbott et al., 2015; Hale and Roger, 2014; Henriksen and Ponte, 2018; Lister et al., 2015; Schleifer, 2013).

Orchestration happens when states or intergovernmental organizations initiate, guide, broaden and/or strengthen transnational governance

(13)

by non-state and/or sub-state actors. It can combine a variety of instruments, including intermediation, regulatory hierarchy, collaboration and delegation. Orchestrators may thus combine straight regulation (or the threat of future/stronger regulation) with collaboration, delegation, intermediation and other hybrid mechanisms – such as placing their own representatives in key positions in intermediary organizations (Henriksen and Ponte, 2018) or harnessing civil society pressure and consumer influence to achieve specific environmental benefits. What we lack so far in existing orchestration approaches is an understanding of the GVC factors that shape sustainability governance, and of how this knowledge can be used strategically and with what limitations. This book seeks to shed light on these questions.

Green Is the New Black: The Business of Sustainability

The role of business in sustainability governance has changed quite dramatically in recent times. Until the 1990s, lead firms in GVCs oper- ated mainly reactively to emerging sustainability concerns. They only had limited power in actively shaping the early sustainability agenda, which was driven mainly by civil society groups and social movements, sometimes in coalition with cities and states. When business exercised influence, it was commonly targeted to slowing down or defeating attempts at environmental regulation it perceived as threatening. In the 1970s and 1980s, corporations were mostly reacting to activist and NGO campaigns and environmental regulation. Sustainability commitments among large corporations tended to be public relation campaigns or reactive measures that followed the exposure of their deleterious practices by NGOs, the media and consumer groups. At that time, companies whose image and product offerings were built on sustainability (e.g. Ben & Jerry’s, Patagonia, The Body Shop) tended to target niche markets, although they were growing healthily (Dauvergne, 2016; Dauvergne and Lister, 2013).

However, the deregulation and liberalization processes that took place starting in the 1980s provided the basic conditions for a major transformation. Some environmental NGOs, such as the WWF, started to collaborate with corporations, attracted by the resources they can mobilize and the speed of change they can impart. Lead firms in GVCs became more active in positively shaping sustainability discourses and practices, first by becoming engaged in self-regulatory and market-based initiatives aimed at improving the environmental

(14)

impact of their operations, and then by identifying ways in which value could be created and captured through sustainability management. By the mid-2000s, a new wave of sustainability initiatives within major corporations (e.g. Danone, General Electric, IKEA, McDonald’s, Nestlé, Nike, Unilever, Walmart) started to emerge (Bregman, 2017). These initiatives are based on the expectation that they enhance profitability and brand reputation, and thus gen- erate additional value. Lead firms in GVCs are now actively using sustainability to help mitigate reputational risk, add to the bottom line, create new product lines, enhance brand loyalty, and increase their power. Sustainability is thus becoming mainstream in business strategy and operations (Humes, 2011) and is likely to remain a strategic concern – as long as it can be leveraged for capital accumulation and to ensure competitive advantage. Corporations continue to lobby against stricter environmental regulation and fund parties and politi- cians that could deliver the same, but this now tends to take place as part of a wider portfolio of corporate sustainability actions. In other words, corporations are turning sustainability into a business.

The gradual mainstreaming of sustainability has been driven by cost-cutting and eco-efficiency efforts that provide corporations with a ‘business case’ for applying environmental improvements. Eco- efficiency processes such as decreasing energy and water use, optimizing packaging, and improving recycling often lead to net cost reductions in operations, and thus allow a focus on the bottom line – something that became even more urgent following the economic downturn of the late 2000s. Companies such as IKEA and Walmart have applied sub- stantial cost-cutting measures on energy consumption, packaging and transport in their own operations, while showcasing these as examples of their ‘commitment to sustainability’. Collecting carbon and other sustainability information has also allowed corporations to let possible investors better assess risk in investment decisions, thus facilitating access to finance (Dauvergne and Lister, 2013: 57–59). The fact that it pays to be green for business is also confirmed in much of the research on socially responsible investment, which suggests that there is no harm in market capitalization performance for lead firms that have a higher sustainability reputation, except at times of stock market spikes (Belghitar et al., 2014: 61; Delmas and Blass, 2010).

Shifting consumer preferences are obviously a factor in shaping what kinds of products lead firms sell and with what sustainability features.

(15)

However, consumer agency (both individual and collective in relation to consumer group pressure) should not be overstated. IKEA did not start demanding more sustainable packaging solutions from its suppliers as a result of consumer dissatisfaction, and Walmart did not move aggressively into organics because its customers were clamouring for it.

They took strategic steps in areas where they perceived a potential for better value creation and capture. Brand risk management (to avoid negative media exposure and/or adverse NGO campaigns) is more central to sustainability management practices than consumer demand (Richey and Ponte, 2011).

Whether the motivation is strategic and/or related to consumer demand, corporations are seeking to develop new product lines with

‘green’ or ‘ecological’ features to diversify their portfolio, and/or create new or improved green goods and services, such as photovoltaic cells, smart thermostats, and wind turbines. This allows them to avoid the saturation of established markets in the Global North by diversifying into new, green products and to open up new markets in emerging economies. The latter is especially feasible when corporations can leverage increasing concerns with food safety and quality among the burgeoning middle classes in the Global South through claiming that their products are ‘green’ or ‘healthy’. Furthermore, large corporate groups have aggressively sought the acquisition of smaller, ‘sustainability oriented’ companies to diversify their brand and product portfolios (e.g. the acquisitions of Ben & Jerry’s by Unilever and Green Mountain Coffee Roasters by Keurig Dr Pepper).

The emergence of the sustainability agenda has also led to a true explosion of partnerships, coalitions and multi-stakeholder initiatives. This has implied an increasing need for lead firms in GVCs to participate in, or at least monitor the development of, these initiatives. Corporate involvement in sustainability partnerships with governments, NGOs and civil society groups has softened the latter’s regulatory and political demands, deflecting more radical solutions and policy options (Dauvergne, 2016). Furthermore, hardcore corporate strategies are themselves being embedded into the practices of multi-stakeholder initiatives on sustainability. The market for sustainability certifications has become as competitive as the market for the goods upon which these labels are affixed (Ponte, 2014b).

As a result, we are witnessing a proliferation in the number and scope of certifications and labels in the sustainability marketplace

(16)

(International Trade Centre, 2017); increased competition within the same realms of sustainability concern (e.g. the breaking off of Fair Trade USA from Fairtrade International in 2011); and the first signs of classic corporate dynamics, such as merger and acquisition activity (e.g. in 2017, two of the main sustainability certifications in agro-food products – Rainforest Alliance and UTZ – announced a merger).

Some of these sustainability initiatives have been created within industry and business associations, such as Vision 2050 of the World Business Council on Sustainable Development (WBCSD) and the Sustainability Initiative of the World Economic Forum (WEF). Others have taken the form of consortia of like-minded corporations (such as the Business for Innovative Climate and Energy Policy, the Sustainable Food Laboratory, the Sustainability Consortium and the Sustainable Agriculture Initiative Platform). Bilateral partnerships between business and civil society groups have also emerged (e.g. between Unilever and Greenpeace, Procter & Gamble and WWF, and Unilever and Fairtrade’s certification arm). Finally, we observe the growth of multi-stakeholder initiatives that were initiated by lead firms in collaboration with civil society organizations (e.g. Unilever was a key player in the formation of the Marine Stewardship Council) and the formation of alliances of sustainability organizations (e.g. the Sustainable Food Laboratory, ISEAL Alliance).

In the next section, I explain how the mainstreaming of sustainability facilitates the capital accumulation strategies by lead firms in GVCs – also through squeezing value from their suppliers in the Global South under the mantle of sustainability management.

Sustainability Management, Green Capital Accumulation and the Sustainability-Driven Supplier Squeeze

What do these trends mean for the structure and operation of GVCs and the global economy more generally? As Coe and Yeung (2015:

4–7) have argued, the organizational dynamics of global value chains and production networks have been driven by three important capitalist dynamics in the past three decades: (1) cost minimization; (2) flexibility;

and (3) speed. The drive for ever-lower costs has led to ‘spatial fixes’, with lead firms, for example, seeking lower-cost but competent suppliers in new locations – in other words, trying to minimize cost/capability ratios. The other two dynamics have led to ‘organizational fixes’ (e.g.

outsourcing to independent suppliers and/or seeking flexibility through

(17)

the casualization of labour and the weakening of labour unions) and

‘technological fixes’, such as seeking new solutions to improve lead time and adaptability (see also Dicken, 2007). Both sets of fixes in turn have tended to facilitate vertical specialization in segments of GVCs where lead firms have the greatest core competences and have allowed capital accumulation to continue and strengthen – as new technologies, deregulation and globalization transform the institutional framework within which corporations operate.

In this book, I argue that we are currently witnessing the emergence of a fourth capitalist dynamic: sustainability management. Sustainability management relates to the practices that corporations put in place to address sustainability issues in ways that facilitate continuous capital accumulation. Sustainability management is reshaping existing spatial, organizational and technological fixes in various ways: (1) some products are increasingly sourced from locations that can deliver sustainability certifications and specifications in larger volumes and at lower cost, or with lower material and energy use (Auld, 2014;

Gulbrandsen, 2010; Ponte, 2012); (2) multi-stakeholder initiatives are playing an important role in governing sustainability and, indirectly, in reshaping the organization of GVC operations (Barrientos et al., 2010; De Marchi et al., 2013b; Hassan and Lund-Thomsen, 2016);

(3) labour regimes in supplier operations are put under pressure from the need to meet new environmental sustainability demands of lead firms (Riisgaard, 2011); and (4) the need to monitor and document sources and processes of sustainability compliance is bringing into play new technologies, such as value chain traceability, sustainability auditing of suppliers, and new metrics and instruments of compliance assessment (Freidberg, 2013, 2014; Giovannucci and Ponte, 2005).

These technologies are themselves being leveraged to obtain more information from suppliers that can be used to better manage value chains without necessarily resorting to vertical integration (Dauvergne and Lister, 2013). This is especially important in view of managing procurement risk due to natural disasters (e.g. the severe disruptions caused in 2011 by the tsunami in Japan and floods in Thailand). As value creation and capture possibilities constantly change, sustainability management is offering new venues of green capital accumulation.

While from the mid-1990s to the mid-2000s the tendency had been for lead firms to move away from hands-on engagement with suppliers in view of tackling sustainability challenges, for example through third-party

(18)

certifications (Gibbon and Ponte, 2005), in the past decade or so this tendency has partially reversed. Lead firms are now re-engaging more directly with (fewer) suppliers within systems of sustainability metrics that they either control internally or develop in cooperation with international NGOs (such as IKEA’s IWAY, Nescafé’s Better Farming Practices, Unilever’s Sustainable Agriculture Code, Mondelēz’s Cocoa Life, or Barry Calebaut’s Cocoa Horizons). They ask their suppliers to apply life- cycle analysis, undertake audits, comply with standards and certifications, and/or provide sustainability reporting (Freidberg, 2013). Sustainability demands are often couched in ideational terms under the business school mantra of ‘shared value’ (Porter and Kramer, 2011). In many industries, first-tier suppliers are encouraged to do the same with their own suppliers, either by implementing lead firms’ standards or by creating their own, which they then offer to companies as an alternative to third-party certification (Grabs, 2017).

Closer interaction with suppliers, in view of monitoring energy and resource use along value chains, provides lead firms with more information about and control over their suppliers – allowing them to leverage additional cost information, extract value, and push the extra cost of sustainability compliance and its related risks upstream towards producers (see Chapters 3 and 4). This raises entry barriers for smaller, less organized and/or more marginalized actors – especially in the Global South. Extra environmental compliance costs can also create incentives to actually further undermine social and labour conditions of production among suppliers. Under the mantle of achieving environmental sustainability, lead firms in GVCs capture value for themselves, while extracting more demands from their suppliers and promoting a further consolidation of their supply base. This is what I term the sustainability-driven supplier squeeze, which is part of a wider

‘cost squeeze’ dynamic aptly documented by Milberg (2008) and Milberg and Winkler (2013).

Devising their own sustainability standards and procedures also allows lead firms in GVCs to seek further diversification – as the market for certified sustainable products grows, it is more difficult to leverage these certifications as a unique selling point. On the one hand, the risk of reputational loss in internal sustainability systems is higher because compliance problems are more easily related to the brand, rather than the certification logo. On the other hand, lead firms can set internal standards at lower levels than for certifications and employ a

(19)

discourse of ‘continuous improvement’, thus mitigating the probability and impact of compliance failure.

Several other benefits for lead firms in GVCs arise from addressing sustainability concerns: (1) they gain better control over product quality and logistics without having to vertically integrate or invest in fixed assets; (2) they can stabilize and monitor the availability of resources and thus reduce the risk of negative impacts deriving from possible disruptions; (3) closer engagement with suppliers grants them better access to resources at times of supply shortages – this has been the case not only for rare earths for electronics, but also for high-quality cocoa or unique coffee origins; and (4) the multiplication of sustainability, training and other ‘development’ initiatives, which allows lead firms to package their supply concerns under the veneer of ‘doing good’ for local communities and farmers (e.g. Mars’ Cocoa Development Centres and Cocoa Village Clinics, Nestlé’s Rural Development Framework, Starbucks’ Kahawa Bora in collaboration with the Eastern Congo Initiative).

By leveraging sustainability management strategically, lead firms in GVCs can now actually afford to be less concerned with shaping the broader sustainability governance agenda beyond their corporate boundaries. Granted, collective initiatives on sustainability that are industry-driven are still important (Fransen, 2012), and corporations are still either participating in, or closely monitoring, NGO-driven sustainability initiatives. However, recent social network analyses have shown that lead firms do not currently play a central role in multi- stakeholder initiatives (Fransen, 2015; Henriksen, 2015; Henriksen and Ponte, 2018). Some lead firms played important roles in early phases of institutionalization but are now taking a more hands-off approach (e.g. Ahold stepped out of UTZ, Unilever is no longer formally part of the MSC). In other words, lead firms have been active in implementing a particular interpretation of the sustainability agenda for their own benefit, but are not currently dominant, or even central, in shaping it (Fransen et al., 2018). They do not need to concern themselves too much with it because they have found ways to make specific opera- tionalizations of sustainability management profitable; and when addressing some aspects of sustainability that are not profitable in the short term, lead firms can still use sustainability instruments to exter- nalize risk, widen product portfolios, improve information about and control over suppliers, and manage brand reputation. Although lead

(20)

firms are no longer directly involved in multi-stakeholder initiatives, they can still use them to diffuse responsibility away from themselves, promote ideas of continuous improvement to defer accountability, and ultimately portray that they can marry two otherwise incommensura- ble goals – achieving sustainability while constantly stimulating growth in global production and consumption (Bowen, 2014; Kendra, 2012;

Newell and Paterson, 2010).

In sum, the business of sustainability is not sufficient as a global solution to pressing climate change and other environmental problems. It is doing enough for corporations seeking to acquire legitimacy and governance authority. This legitimacy is further enhanced through partnerships with governments and civil society groups. Some of this engagement is used strategically to provide ‘soft’ solutions to sustainability concerns and to avoid more stringent regulation. While the business of sustainability is leading to some environmental improvements in some places, and better use of resources in relative terms in some industries, the overall pressure on global resources is increasing.

The green capital that business accumulates through sustainability management accrues at the cost of brown environments. Green capitalism and the unsustainable exploitation of nature continue to go hand in hand.

In the rest of this book, I will show the importance of GVC dynamics in informing the orchestration of sustainability by public actors and civil society, but also indicate the limitations of business-driven solutions as the goal of green capital accumulation trumps the achievement of sustainability improvements. Therefore, I will also reflect on a larger set of ideas on the systemic rethinking that is needed to reorganize the global economy towards ‘just sustainabilities’.

Main Arguments and Novel Contributions

The book is structured along two main arguments. The first argument is that sustainability management is becoming an additional feature of contemporary capitalism, together with the minimization of cost/capability ratios and the maximization of flexibility and speed – contributing to the consolidation of ‘green capitalism’. It will show that sustainability management is leading to new configurations of existing spatial, organizational and technological ‘fixes’ that facilitate continuous capital accumulation. Despite suppliers having undergone impressive economic and environmental upgrading trajectories in many

(21)

GVCs, they have achieved only limited economic gains. Suppliers offer sustainability certification or verification often to simply keep participating in GVCs, leading to lower margins unless productivity gains can more than compensate for higher costs. When suppliers do manage to receive higher prices from buyers as part of economic and environmental upgrading, it is usually in the context of much larger gains that buyers capture in the same GVC. Thus, the sustainability-driven supplier squeeze goes hand in hand with green capital accumulation by lead firms in GVCs. This is the main analytical contribution of the book.

The second argument is that, even within the confines of green capitalism, public actors at all jurisdictional levels can still put in place orchestration strategies seeking to improve the achievement of sustainability goals, rather than simply green capital accumulation. Likewise, activists and civil society groups can identify and leverage pressure points to strengthen the effectiveness of orchestration. But these strategies have to be informed by the realities of the daily practices, power relations and governance structures of a world economy that is organized in global value chains. In Chapter 5, I will show that orchestration is more likely to succeed when a combination of directive and facilitative instruments is used; when sustainability issues have high visibility in a GVC; when private and public sectors’ interests are aligned; and when orchestrators are aware of the kinds of power that underpin GVC governance and act to reshape these power configurations accordingly.

Orchestration thus entails choices about possible combinations of directive and facilitative instruments that reinforce each other, ways of improving issue visibility, and approaches and incentives that facilitate the alignment of private and public sector interests – through measures that recognize the different forms and combinations of power exercised by lead firms in GVCs. Therefore, this book seeks to provide novel insights on how to ask the right questions, rather than providing a neat but ultimately flawed general model of orchestration.

Tackling the combination of green capital accumulation and limited sustainability gains demands approaches that: span from the micro to the macro level; examine the day-by-day micro-practices and incentives for and against environmental sustainability and how they are transmitted along supply chains; and explain how they aggregate and coalesce or clash with the myriad of regulations, initiatives and experiments at various geographical scales that make up sustainability governance. Yet the ‘sustainability strategy’ literature in business

(22)

studies is exclusively focused on what happens inside the firm (Orsato, 2009), and especially within transnational corporations. The ‘sustainable supply chain management’ literature provides relevant entry points on supply relations (Seuring and Gold, 2013; Seuring and Müller, 2008; Seuring et al., 2008) but remains descriptive and focused on achieving competitive advantage. And the large literature on transnational sustainability governance in the social sciences more generally provides a rich source of analysis of the complexity of sustainability instruments and overlap of actors, but downplays how these interact with the day-by-day governance dynamics in the main organizational feature of the contemporary global economy – the global value chain. At the same time, existing GVC research has not satisfactorily incorporated environmental concerns in its effort to explain governance and upgrading dynamics.

On the basis of 20 years of theoretical engagement and field research, in this book I draw especially from three case studies of labour-intensive value chains in the agro-food sector (wine, coffee and biofuels), but also from the experiences of capital-intensive GVCs where mobile assets are important (shipping and aviation). The various roles of governments, civil society organizations, business and business associations, multi-stakeholder initiatives, and other groups are integrated organically in the analysis in sustainability governance, but their role is ‘read through’ the framework of GVC analysis, and in particular its power dynamics.

Ultimately, I seek to make three main analytical contributions to the fields of sustainability governance and GVC analysis in this book: (1) provide an approach to understanding processes and outcomes of sustainability governance through the lenses of GVC analysis (Bush et al., 2015); (2) further develop current efforts aimed at embedding sustainability in GVC governance theory through the lenses of power (Dallas et al., 2019); and (3) expand the analysis of GVC upgrading by further exploring its environmental dimensions.

Organization of the Book

In Chapter 1, I review relevant literatures that can provide useful insights on the complexity of governing sustainability in a world of global value chains. In Chapter 2, I discuss the foundational bases for understanding the governance of global value chains (GVCs) from a sustainability perspective. I then inject sustainability issues into a

(23)

typology of power in GVCs (bargaining, demonstrative, institutional and constitutive) to provide an analytical framework for the empirical analysis carried out in the following chapters. In Chapter 3, I examine the dynamics of governance, power and sustainability in three GVCs in the agro-food sector: wine, coffee and biofuels. I trace the evolu- tion of various combinations of power and how sustainability factors play into them – in view of providing a nuanced and dynamic picture of GVC governance. In Chapter 4, I examine how sustainability factors are shaping the interlinked processes of economic and environmental upgrading – distinguishing between upgrading as process and upgrading as outcome (for lead firms, suppliers and the environment).

Empirically, I continue the analysis of the wine, coffee and biofuels GVCs, but also draw from other GVCs in labour-intensive and capital-intensive manufacturing. In Chapter 5, I discuss to what extent orchestration by public authorities and international organizations can facilitate environmental upgrading trajectories in GVCs. I assess the role of four possible enabling factors of orchestration: combina- tory measures of directive and facilitative instruments, issue visibility, interest alignment, and regulatory uncertainty. I draw empirically from the same three agro-food GVCs, but also from detailed work on orchestration efforts in two capital-intensive GVCs – aviation and maritime shipping. In the Conclusion, I explore the potential role and limitations of orchestration and activism in a world of global value chains and green capitalism.

This book is targeted to two main audiences. The first is a general audience interested in how the global economy is changing and in how business manages sustainability issues. This audience includes undergraduate and graduate students, practitioners, policymakers, journalists, and whoever may care about the environment and ine- quality. To this audience, I seek to provide a general picture of whether and to what extent business can help solve global environmental issues, what redistributions are entailed in the mainstreaming of sustainability, and the potential and limits of orchestration and activism within the confines of green capitalism. These readers are likely to be especially interested in the empirical parts of Chapter 2 (on power, sustainability and governance), Chapter 3 (on environmental upgrading processes and outcomes), Chapter 4 (on the role of public actors in orchestrating change) and the Conclusion (on ‘just sustainabilities’ in a world of GVCs).

(24)

The second audience is comprised of scholars and researchers interested in green capitalism, global environmental issues, transnational sustainability governance, multi-stakeholder initiatives on sustainability, corporate strategy and organization, and the governance of global value chains and production networks. The book will be more appeal- ing to those who work across disciplines in the social sciences – rather than exclusively inside one – and who contribute to debates relevant to economic geography, industrial organization, international and transnational relations, environmental policy and planning, political ecology, international political economy, international development, corporate social responsibility, and business studies more generally.

These readers are likely to be particularly interested in the review of the relevant literatures included in Chapter 1 and in the analytical framework on power, sustainability and governance developed in Chapter 2. Those interested in how global value chains and production networks are being reconfigured through sustainability management will be particularly interested in Chapters 3 and 4. Those interested in transnational sustainability governance, sustainability transformations and environmental policy will be particularly interested in Chapter 5.